Microsoft is currently searching for a new CEO to replace Steve Ballmer who plans to retire within the next 10 months. Recent reports suggest the company has shortlisted Ford CEO Alan Mulally and former Nokia CEO Stephen Elop as external candidates.Mulally has stated he has no intentions to leave Ford, but aBloomberg report claims that Elop has big plans if he’s made CEO. After a brief stint as the head of Microsoft’s business division, responsible for Office and other products, Elop’s return to Microsoft in the CEO position would reportedly involve a push for Office on Android and iOS.Elop is reportedly considering a strategy shift away from Microsoft’s tradition of Office running primarily on Windows PCs. Bloomberg reports that Elop is formulating "some broad strategic outlines for Microsoft," in what is likely to be part of the interview process for the CEO position. Elop’s potential strategy is said to involve maximizing sales of Office instead of using it to push Windows PC and tablet sales. Microsoft’s Office and server software has been performing well in recent financial results, while Windows continues to struggle alongside a declining PC industry. Although Office has launched for iOS andAndroid, Microsoft could certainly do more to offer complete versions on those rival platforms.ELOP COULD KILL BING AND SELL XBOX IF HE'S MADE CEOBloomberg also suggests that Elop is willing to shut down or sell some major Microsoft businesses. Elop would reportedly considering killing off the company’s Bing search engine, while contemplating selling the Xbox business. Some investors and analysts have previously called for the software giant to split off its Xbox business and give up on search. Microsoft co-founder Paul Allen appears to feel the same way. Allen’s $15 billion asset manager, Paul Ghaffari, revealed recently that Bing and Xbox have been distractions for Microsoft. "My view is there are some parts of that operation they should probably spin out, get rid of, to focus on the enterprise and focus on the cloud." Nomura analyst Rick Sherlund claims Microsoft’s financial earnings could be boosted by 40 percent in fiscal 2015 if the company sold its Bing and Xbox businesses.Any sale of Bing or Xbox seems unlikely, despite continued suggestions over the years. Microsoft is moving to integrate its search engine experience directly into Windows 8.1and Windows Phone, and the company is just weeks away from launching its next-generation Xbox One console. Bing also powers a number Xbox search and app features. Either way, Microsoft’s CEO search appears to be progressing with some suggesting the company may name a Ballmer successor by the end of the year.

Wall Street’s top-ranked software industry analyst for nearly two decades, Rick Sherlund, the former Goldman Sachs now Nomura Equity research analyst has covered Microsoft since they went public in 1986. Sherlund is a personal friend of Bill Gates & Paul Allen and was a liaison between Goldman & Microsoft during his time there. In a report he published today he recommends Microsoft sell Xbox and Bing:
Sherlund of Bing:

While we like Bing as a service, we need to look at this from an ROI and strategic perspective. If Microsoft could sell or even give Bing to Facebook or Yahoo and eliminate its operating costs and get a Traffic Acquisition Cost (TAC) back to monetize the traffic that Windows/Internet Explorer or Xbox in the living room can drive to Bing, this might generate perhaps $1.0bn of profit and positive FCF rather than be a drag of a similar magnitude. If this were returned to shareholders, this could add nearly 1% incremental to the dividend yield, in our estimation.

Sherlund of Xbox:

Xbox is one of the areas of success for Microsoft and is cool to consumers, but it is perhaps time to assess whether this can ever be material to the overall company and might be moreleveragable to a consumer-oriented company such as Samsung. Perhaps they would be willing to pay several billion dollars for this to leverage their substantial consumer electronics business?Shareholders might want to know if they could possibly be better off if Xbox were spun out as a separate company or sold. Either way, it is not that material to the overall valuation of Microsoft and will not likely determine the success of Microsoft going forward; it’s just not profitable enough to move the needle that much at the company.

So with Bing sold to Yahoo or Facebook and Xbox sold to Samsung, that leaves Microsoft primarily with Windows & Office. Sherlund isn’t happy about Office either:

Sherlund writes, “We believe there are many iPad and Android tablet users that would be willing to pay a monthly subscription fee for Office were it delivered on these platforms. Since Office is not available, users are finding substitutes such as Evernote, DropBox, Pages or Google Docs etc. This is bad – Office is being disenfranchised on the hottest growth platforms.”

Now we’re getting to the real reason why Sherlund has put forth these crazy ideas. ValueAct Capital recently disclosed that it has acquired about 1% of Microsoft’s shares and spent a couple billion doing so. Sherlund believes activist shareholders may force Microsoft to do not what is in the best interest of the company, but what will return the most money to the shareholders. One way of doing this will be to divide the company up, while it is at maximum value, and sell it off piece by piece. Paul Thurrott has in fact recommended this for years. Sherlund believes one way Microsoft could do is by selling of Xbox and Bing, which he believes are not core to the company and will not significantly move the stock price up.
I personally believe that selling of Bing and Xbox is the stupidest thing Microsoft could do, and it will not happen. But the threat of shareholder activism is always real and it will be interesting to watch in the coming months.

What I find really odd is that people actually think that Xbox is what made Microsoft and it isn't. Windows is where Microsoft got pretty much all it's money. As a matter of fact there is an article that states that if it wasn't for royalties off of android devices that Microsoft would be losing around $2 billion off the Xbox brand. Even if it's not true, Microsoft has still made billions without it and could continue to make more of a profit if Microsoft focuses on other things.

There are quite a few people that want to get rid of Bing and Xbox that are CEO candidates. It could be possible that Xbox is not making as much money as people think. They went into the console business thinking they could dominate, just like they did with Windows. Evidently it didn't turn out that way.

According to the second article, it looks like a lot of investors are pushing to sell off the XBox label as well. I remember reading a few months back that MS is still over 2B in losses on the Xbox since the first one launched.

The reason to sell the Xbox business could be something other than Xbox division not being profitable -- it might have to do with declining sales of Windows 8 (investors could potentially be attributing that to the Xbox business -- as a distraction.) They might have suggested to sell it so Microsoft can focus back on Windows.

The Console Wars In An Alternate Universe

It's a long story so I'll give you the gist. Sources say Elop will consider killing off unprofitable MS business segments and selling off profitable ones that don't in his opinion contribute to a more focused product strategy at MS. That includes the whole games business.

So imagine the Xbox division running as a completely autonomous division of some hands-off corporate parent, not much accountable to the mothership, or accountable to a more progressive mothership. Potentially, even likely, they don't have the kind of cash MS gives them to buy exclusives, timed exclusives and first-release DLC. But they're not beholden to what has become a pretty stuffy old corporation full of twisty hallways of Byzantine bureaucracy. That could completely change the face of competition with Sony and PS4. They'd quite possibly have the latitude to make quick, radical decision to boost their console business. Instead of two behemoths, both with other entertainment business units they have to factor into their games units, Sony with what reasonably seems the more technically proficient console, it easily could turn this generation's console wars into much more a perceived David and Goliath scenario. And Xbox Inc. could play to that perception. David is smaller and weaker, but he's young and fast and can react in a heartbeat. The cash deprivation could kill them yet a stripped-down games-only model could give them some substantial market advantages, too.

Now that would be interesting.

If you read the rest of the article, it's not going to happen. Elop is alleged to be considering what is tantamount to turning Microsoft into WordPerfect corporation circa the late 1980s and early 1990s. MS Office becomes the core business. The board won't hire Elop if his informal musings turn into his formal proposal for running MS. The board won't let him do it even if they goof and hire him anyway. Realistically, the outside candidate is Ford's Mulally. More realistically, MS CEO goes to an inside candidate.

The Xbox forums are all aflutter, though. They're reading "sell a profitable business unit to streamline market focus" as "discontinue the Xbox product line."

This isn't the first time this has been discuss or come up. But if this would happen who would they sell to. Apple or maybe Sony would bye them out.. Who knows. But It gives Xbox fans something to talk about.

Elop's a master at driving businesses into the ground. He did it with Nokia and now wants to take Ballmer's job and do it to MS.

That said, I believe the Gaming division at MS has actually had a very free hand to do what the hell it wanted a MS, and if they were to separate the gaming division off with it being more self reliant for funding (R&D money) and working with major chip vendors for HW, and major game companies w/o MS backing they would actually be much more restricted than they are today.

That said, it was a simple one liner saying he'd consider selling any business unit he didn't see as being critical. Basically saying he wouldn't $#@! things up by trying to go/stay too broad like he did with Nokia.

Elop's a master at driving businesses into the ground. He did it with Nokia and now wants to take Ballmer's job and do it to MS.

That said, I believe the Gaming division at MS has actually had a very free hand to do what the hell it wanted a MS, and if they were to separate the gaming division off with it being more self reliant for funding (R&D money) and working with major chip vendors for HW, and major game companies w/o MS backing they would actually be much more restricted than they are today.

That said, it was a simple one liner saying he'd consider selling any business unit he didn't see as being critical. Basically saying he wouldn't $#@! things up by trying to go/stay too broad like he did with Nokia.

I think they had a very free hand until the 360 really took off. After that they became far more accountable to corporate management. My opinion. Also my opinion, I get the context of the statement but I think Elop is just nutty enough to do it. I think he's games-averse like Steve Jobs was games-averse. Elop maybe it's just he's a stuttering old bore. I mean, look at that haircut. I think Jobs became games-averse from working at Atari. I think he got stuck in his head based on the state of games way back then that games could never be good enough to be worth anyone's time and he only revisited that determination on the business side for iPhone and iPad, never revisited it personally.

Considering that there was little difference between the 360 and PS3 last gen in terms of games, one less of the them would probably help the market and competition. Say what you want about the WiiU but all the big titles that sell for Nintendo are Nintendo only and will always be that way. Except for a couple exclusives on each side, the only difference in games between the PS3 and 360 is Japan makes 99% of its non-Nintendo games on the PS3. To the English market: Want a sports game? Its on both. Want COD? Its on both. Want Resident Evil? Its on both. Assassin's Creed? Mass Effect? Double yep. So on and so on and so on.

What I find really odd is that people actually think that Xbox is what made Microsoft and it isn't. Windows is where Microsoft got pretty much all it's money. As a matter of fact there is an article that states that if it wasn't for royalties off of android devices that Microsoft would be losing around $2 billion off the Xbox brand. Even if it's not true, Microsoft has still made billions without it and could continue to make more of a profit if Microsoft focuses on other things.

There are quite a few people that want to get rid of Bing and Xbox that are CEO candidates. It could be possible that Xbox is not making as much money as people think. They went into the console business thinking they could dominate, just like they did with Windows. Evidently it didn't turn out that way.

XBOX is profitable AND it is their in to the living room! Elop is a complete mole and did the job for MS at Nokia and he'll take any commission for little work as he can get. Sherlund could be in someone's back pocket.
MS can only Benefit from XBOX. The ONLY THING bad ever to happen to XBOX that hurt MS image is this launch, and that can be recovered (it has to fight a different fight as it can't match the PS4 graphically).
;How the RRoD didn't kill it is beyond me aside from showing how good 360 games were. With that kind of base, and growth being in mobile and gaming, no, XBOX sale would be absurd.

Originally Posted by Two4DaMoney

sell 343 and Rare to Sony and I wouldn't care about Xbox being gone. Ps2 dominated, had great games. Save the "competition" bs for someone else.

Sony would at least let Rare produce other games and not cancel them all like MS.(that canceled Rare games thread was very telling of MS)

Not a good idea. Are you a wrestling fan per chance? If so, look at WWE today versus WWE when they had to fight off Ted Turner and WCW and tell me competition isn't a better thing. And, in most cases, competition breeds better things for everybody.

It's already in the hands of some company that doesn't care. Good for gamers if it's sold to a good company, but I don't see them actually selling it. And if they did, it would probably be to another cancer like EA.

XBOX is profitable AND it is their in to the living room! Elop is a complete mole and did the job for MS at Nokia and he'll take any commission for little work as he can get. Sherlund could be in someone's back pocket.
MS can only Benefit from XBOX. The ONLY THING bad ever to happen to XBOX that hurt MS image is this launch, and that can be recovered (it has to fight a different fight as it can't match the PS4 graphically).
;How the RRoD didn't kill it is beyond me aside from showing how good 360 games were. With that kind of base, and growth being in mobile and gaming, no, XBOX sale would be absurd.

Not a good idea. Are you a wrestling fan per chance? If so, look at WWE today versus WWE when they had to fight off Ted Turner and WCW and tell me competition isn't a better thing. And, in most cases, competition breeds better things for everybody.

Again, it was Windows that made the profit for Microsoft, not Xbox. there is a reason why it's not only Elop that want's to get rid of the Xbox Division. This falls under all the CEO candidates that are pushing to get rid of it. From numerous articles it was the royalties off of Android devices which was around $2 Billion. If enough people are behind with kicking out the Xbox division, it will happen. What may actually happen is they will continue support for the Xbox One but will not make another console after this. If enough backers are with this, it's going to happen.

Microsoft is generating $2 billion per year in revenue from Android patent royalties, says Nomura analyst Rick Sherlund in a new note on the company.

He estimates that the Android revenue has a 95% margin, so it's pretty much all profit.

This money, says Sherlund, helps Microsoft hide the fact that its mobile and Xbox groups are burning serious cash.

For the past few years, Microsoft reported the revenue and operating losses of Entertainment and Devices, which was the group that housed Xbox, Windows Phone, and those Android royalty payments.

That group always seemed to be profitable, but Sherlund says it's largely because of the Android money.

Sherlund says that if you back out the Android profits, Microsoft is probably losing $2.5 billion on Skype, Xbox, and Windows Phone. Of that, $2 billion in losses are attributable to the Xbox platform.

Sherlund believes Microsoft needs to spin out Xbox. He sees it as an orphan group at Microsoft that doesn't really fit with anything it's doing.

Investors are blind to Xbox's struggles, says Sherlund, because they are "concealed by the hugely profitable Android royalties."

They won't sell off the whole division, they will break it down to where they can make money off the royalties. They will sell studios but other than that it will be royalties. That is, if they decide to pull out of the console market.

sell 343 and Rare to Sony and I wouldn't care about Xbox being gone. Ps2 dominated, had great games. Save the "competition" bs for someone else. Sony would at least let Rare produce other games and not cancel them all like MS.(that canceled Rare games thread was very telling of MS)

I agree. The PS2 era was dominated by Sony and that was my favorite gaming generation. I would add Turn 10 to that list.

According to the second article, it looks like a lot of investors are pushing to sell off the XBox label as well. I remember reading a few months back that MS is still over 2B in losses on the Xbox since the first one launched.

You obviously didn't even read that second article. It doesn't say anything about actual investors doing, wanting, etc., anything. It's an "IF" analysis made by ONE person that is an, *cough, analyst. Add a "MIGHT" onto his thoughts.

Might be in the minority but I think Apple would be a great contender. (and i usually steer clear of Apple stuff)
Sure they have proprietary parts up the whazooo but they do know how to make good software (OS).

Not a good idea. Are you a wrestling fan per chance? If so, look at WWE today versus WWE when they had to fight off Ted Turner and WCW and tell me competition isn't a better thing. And, in most cases, competition breeds better things for everybody.

XBOX is profitable AND it is their in to the living room! Elop is a complete mole and did the job for MS at Nokia and he'll take any commission for little work as he can get. Sherlund could be in someone's back pocket. MS can only Benefit from XBOX. The ONLY THING bad ever to happen to XBOX that hurt MS image is this launch, and that can be recovered (it has to fight a different fight as it can't match the PS4 graphically). ;How the RRoD didn't kill it is beyond me aside from showing how good 360 games were. With that kind of base, and growth being in mobile and gaming, no, XBOX sale would be absurd. Not a good idea. Are you a wrestling fan per chance? If so, look at WWE today versus WWE when they had to fight off Ted Turner and WCW and tell me competition isn't a better thing. And, in most cases, competition breeds better things for everybody.

WWE was WWF when they were fighting off WCW. I loved WWF in the mid to late 90's.

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